Swords and Shields: Carmack Preemption, FAAAA Preemption & Waiver – Part III: Waiver

Kevin Anderson Cargo Liability, Contracts, Regulations

What is Waiver?   Under 49 USC 14101(b) a carrier, at its option, may enter into ongoing transportation contracts with shippers, other than for the transportation of household goods, to provide specified services at specified rates. In addition, if they agree in writing, the carrier and shipper may expressly waive any or all rights and remedies provided for under 49 U.S. Code, Part B–Motor Carriers, Water Carriers, Brokers, and Freight Forwarders, except for the statutory provisions and related regulations that govern registration, insurance, or safety fitness.   If there is a waiver, then the contract (1) is not subject to the waived rights and remedies, (2) may not be subsequently challenged on the ground that that it violates the waived rights and remedies, and (3) the exclusive remedy for any alleged breach of  the contract containing a waiver provision is in an appropriate State court or U.S. District Court, unless the parties otherwise agree.

Who is a Carrier?  As indicated, only a carrier can agree to waive the otherwise applicable provision. So the first question is “Who is a carrier?”  A carrier is defined as a motor carrier, a water carrier, and a freight forwarder. 49 USC 13102(3).

Who is a Motor Carrier?  In 1995 the definition of a “motor carrier” was changed to mean a person providing motor vehicle transportation for compensation. 49 USC 13102(14).

What About Common Carriers and Contract Carriers?  Also in 1995 the distinction between common and contract carriers was eliminated, so that there are now only “motor carriers.”  However, despite this change, the FMCSA continues to issue “common carrier certificates” and “contract carrier permits.”  Regardless of the type of authority a motor carrier holds, whether a contract carrier permit or a common carrier certificate, they are both motor carriers. But a motor carrier can distinguish the type of service it provides.

What is “Contract Carriage”?  Since these changes were made in 1995 a motor carrier (regardless whether its FMCSA-issued authority says it is a common carrier certificate or a contract carrier permit) can provide “contract carriage.”  Since January 1, 1996 “contract carriage” has been defined as transportation service provided under a contract entered into under 49 USC 14101(b).  As discussed above, 49 USC 14101(b) simply states that a “carrier” may provide transportation or other regulated services under a contract with a shipper, other than for the transportation of household goods, to provide specified services under specified rates and conditions.  If there is no contract, then service is provided as a motor carrier subject to all of the provisions of  49 U.S. Code, Part B, Motor Carriers, Water Carriers, Brokers, and Freight Forwarders.  It is important to note that waiver is optional, is not automatic, and must be expressly stated in the contract if it is desired.

What Contracts are We Talking About?  The contracts subject to waiver are any contracts that a motor carrier or freight forwarder (“water carriers” are named in the statute but excluded from this discussion)  may enter into, including, but not necessarily limited to, Carrier-Shipper Contracts, Carrier-Broker Contracts, Freight Forwarder-Shipper Contracts and Freight Forwarder-Carrier Contracts.

Where do Brokers Fit In?  It is important to note that although brokers are not motor carriers or freight forwarders and are not named in 49 USC 14101(b)(1), virtually all of the contracts brokers enter into are with carriers and freight forwarders, so brokers need to be aware of the pros and cons of waiver and negotiate for or against waiver as they deem most appropriate for their business. In these contracts, brokers also generally qualify as shippers.

What About Broker-Shipper Contracts?  As indicated above, Broker-Shipper Contracts do not fall within the scope of 49 USC 14101(b)(1). However, that does not mean that a broker is obligated to comply with a myriad of regulations under 49 U.S. Code Part B–Motor Carriers, Water Carriers, Brokers, and Freight Forwarders.  For all intents and purposes, a broker already has the right to negotiate virtually all terms, conditions, provisions and remedies contained in its Broker-Shipper Contracts.

TO WAIVE OR NOT TO WAIVE?   There has been and is an ongoing debate amongst transportation attorneys throughout the country whether to waive or not waive the provisions of 49 U.S. Code Part B–Motor Carrier, Water Carriers, Brokers, and Freight Forwarders.  Indeed, this issue has been the subject of multiple presentations at conferences for transportation attorneys over the years since the provision was enacted effective January 1, 1996. There are three positions generally presented: First, do not waive any provisions at any time;  second, waive all provisions all the time; and third, waive some of the provisions some of the time.

Argument:  No Waiver Ever.  The transportation attorneys who argue no provisions should ever be waived argue that the statutes in and regulations issued under 49 U.S. Code Part B set up a well established system for determining the rights, duties and liabilities of all parties involved in transportation (carriers, freight forwards, brokers and shippers).  This is true, especially in defining the role of each participant and their respective rights, duties and liabilities. By avoiding that framework, the parties waiving the statutes and regulations are opening themselves up to the diverse and often inconsistent laws and rules of each of the 50 states.

The no waiver ever position is most often presented by those attorneys that represent LTL and other motor carriers, especially in freight loss and damage claims. In that regard, the Carmack Amendment (49 USC 14706) has been interpreted by federal and state courts for over 100 years, and the “rules” for Carmack cases are well-settled for the most part. Moreover, Carmack cases are subject to federal court jurisdiction in most cases (as long as the claim is for more than $10,000), and it is generally recognized that federal court judges are much more sophisticated in this area of the law than are state court judges.

These attorneys also point out that the existing statutory and regulatory framework works to assist brokers, freight forwarders and shippers by virtue of the provisions that define and otherwise apply to them, although these provisions are much less extensive than those applicable to motor carriers.

Nevertheless, there is no reason for a motor carrier to retain all provisions. For example, if a carrier and a shipper agree to limit the carrier’s liability for freight loss and damage to a specified amount, there is no reason to retain (that is, not waive) the provision of the Carmack Amendment, 49 USC 14706(c)(1)(A), and the case law interpreting that provision, dealing with what the carrier must do to limit its liability. From our perspective it makes sense to waive that specific provision and avoid any subsequent dispute with a shipper whether the contractual limitation or the statute applies.

Argument:  Waive Everything Always.   Some, but not many, transportation attorneys argue that all provisions should be waived at all times.  These proponents often represent shippers and take the position that the carrier and the shipper should set out their complete agreement within the “four corners of the contract.”  We state with utmost confidence that virtually every motor carrier, broker and freight forwarder has received a form contract from a shipper with a demand that it be signed and returned.  Overwhelmingly these shipper-drafted contracts are not subject to negotiation, contain a complete waiver provision, and are one-sided in the extreme.  Indeed, we have had broker clients presented with these shipper prepared contracts that define our broker-client to be a motor carrier. When we have tried to change the contract to correctly define our client as a broker, we have been told it cannot be done. Obviously, a complete waiver of everything always is an unacceptable provision.

Argument: Waive Some Provisions Some of the Time.   Over the years we have come to the conclusion that partial waiver is the best way to proceed. The statute, 49 USC 14101(b), states that the shipper and carrier can “expressly waive any or all rights and remedies” provided under the statute. This makes sense, because some of the statutory provisions and regulations make little sense and, in our opinion, should be waived for the benefit of all parties. One simple example is the provision of the regulations governing the processing and determination of freight loss and damage claims.  49 CFR Part 370 gives the carrier an open ended time frame to determine a claim as long as it gives the claimant an update every 60 days after the initial 120 day investigation period report. From our perspective, freight claims should be decided by the motor carrier or freight forwarder within a reasonable time, which we believe should be 90 days or less in most cases. At the same time, however, the Carmack Amendment should be retained for the determination of freight loss and damage claims, even if some of the provisions might be modified, as long as the core provisions remain intact.

This debate will continue, and it is important that you know what waiver is all about. If you are requested to sign a contract with a waiver provision, do not skip over it thinking it is some inconsequential legalese. It is not, but it is a provision that likely will have a serious impact on your duties, rights and liabilities.